In an effort to reduce expenses and better compete with United Parcel Service (UPS.N) and Amazon, FedEx Corp (FDX.N) announced on Wednesday that it will combine its various delivery companies into a singular company. (AMZN.O).
Almost a year after activist investor D.E. Shaw campaigned for change and gained two extra board seats, FedEx revealed its plan to combine FedEx Ground, its outsourced package delivery division, with the FedEx Express overnight air delivery company.
The demand on Chief Executive Officer Raj Subramaniam to simplify operations has increased in recent months due to the deflating e-commerce shipping bubble and the threat of a possible recession.
At a business gathering in New York City, Subramaniam stated, “We think that this is the right time to reorganize how we work together.”
We will be more nimble, leaner, and better equipped to carry out our goal of assisting clients in competing and succeeding with the world’s most advanced transportation network.
As part of a larger strategy by the Memphis-based company to reduce $4 billion in fixed expenses by the end of its 2025 fiscal year, the merged business is scheduled to handle all dispatches starting in June 2024.
Beginning on April 16, John Smith will oversee land operations for FedEx Express, FedEx Ground, and FedEx Freight as president and CEO of FedEx Express’s ground operations in the United States and Canada.
According to the business, FedEx Freight will continue to operate independently under the Federal Express Corp name and offer freight delivery services.
Shares of FedEx, which on Wednesday also disclosed a 10% payout increase, were down about 1% at $228.69.
MODEL FOR “HYBRID”
Approximately 20 years of independent delivery operations would come to an end under the new structure, which would also establish a company akin to FedEx’s cost-conscious competitor UPS, which has beaten it despite using more costly union labor.
According to business officials, the new combined service is currently being tested in Minneapolis. In Alaska and Hawaii, where air service predominates, FedEx Express already handles FedEx Ground transfers and dispatches.
Concerns about their future roles at the business as a result of recent corporate changes are growing among Ground employees. FedEx will make dispatches using a “hybrid” employee and contractor approach, according to Subramaniam. The CEO also said the business would continue to be non-union.
Analysts pointed out that the company’s “standstill” deal with activist D.E. Shaw was scheduled to terminate at the end of May, despite executives’ claims that FedEx has been “looking” at this project for the past couple of years. The deal halted attempts to sway corporate administration or control.
Regardless of the timeline, the business has about a year to implement significant change.
Attending the gathering on Wednesday was Satish Jindel, who co-founded the business that later became FedEx Ground and currently serves as the CEO of consultancy ShipMatrix. He told Reuters that it was a doable objective that would increase revenue and stock prices.
Critics pointed out that FedEx leaders struggled for years to integrate TNT in Europe and allowed overhead costs to erode their labor cost edge over UPS.
Dean Maciuba, general partner at Crossroads Parcel Consulting and a former FedEx sales executive, said: “There’s no way that this isn’t fraught with danger. “If they do it right,” he added, “they can evolve into a lower-cost service provider than UPS.”
